EMEA News
Libya Production Comeback Symbolic of Problems OPEC Faces at Abu Dhabi: Analysts
As West Texas Intermediate and Brent on Monday dropped 19 cents and 5 cents to $49.39 and $52.37 per barrel respectively, analysts found it symbolic that the decreases coincided with news of crude production in Libya returning to normal after being halted by armed protesters - and just as the Organization of the Petroleum Exporting Countries (OPEC) was beginning its two-day meeting in Abu Dhabi to determine how to improve compliance of its production cutback initiative.
John Kilduff, founding partner at Again Capital, remarked that Libya's resumption "is emblematic of the problems for OPEC and the oil market in terms of just the gross oversupply situation that we remain in," and he added that the meeting "will be a negative for the market too if they can't agree on recommending some further measures."
The launch of the meeting caused a flurry of speculation as to what might happen and possible market consequences; Christopher Sell, editor of the Bloomberg Brief Oil Buyers Guide, called Libya's surge of production "a big deal" and predicted it, along with other cheating countries, would be put under considerable pressure to reduce production; he added that unless Libya and Nigeria are reined in, "we'll keep going on the merry go round."
Robin Mills, founder and CEO of Qamar Energy, blamed Libya and Nigeria directly for the current oil price decline; he told Bloomberg, "because their production has recovered much more than people expected, certainly in Libya; and that has undone a lot of the impact of the [OPEC] cuts."
However, he said it was "a question mark" whether Libya's production comeback is sustainable, given the considerable civil unrest in that country.
As for the possibility of OPEC being able to control renegade producers, Mills said "the ultimate enforcement mechanism is that Saudi Arabia in particular walks away from any deal, and production goes up and prices collapse and members get hurt."
Bob Yawger, director of the futures division at Mizuho Securities USA, said the is even speculation "on whether the Russians agree to a bigger supply cut; but someone is going to have to say something if you want to get out of this $48, $49 range."
For his part, Francisco Blanch, global head of commodities research for Bank of America Merrill Lynch, mused that OPEC would have been better off enacting a deeper cut for a shorter period of time.
And yet, for all the sudden consensus that something has to happen at the Abu Dhabi meeting in order for the market to escape the doldrums, Reuters reports that "hedge funds and other money managers are becoming bullish again about oil prices, for the third time this year" - possibly a sign of impending rising prices, and indicative that investors think the market is showing signs of rebalancing.
Reuters goes on to note that "There are some sound fundamental reasons for optimism, with signs oil stocks drawing faster than normal for the time of year and shale drilling leveling off in response to lower oil prices since the first quarter; and Saudi Arabia has pledged to cut its exports sharply in August to accelerate the draw down in global oil inventories."
Last week, Andrew Slaughter, executive director of Deloitte's Center for Energy Solutions, lamented the fact that OPEC has no punitive action it can take against cutback cheaters, and he concluded that the cartel will likely have to fall back on the questionable efficacy of diplomatic persuasion and finger-pointing.
